Highlights
Consumer sentiment is surging this month, to a 101.1 preliminary index for October which is up a very sharp 6 points from September and the highest reading in 13 years. Full employment is a big plus for consumers amid early indications that wages may finally be moving higher. The expectation that inflation will remain low is another factor boosting confidence in income.

The expectations component is up nearly 7 points to 91.3 with the component for current conditions posting a nearly 5 point gain to 116.4. Low inflation expectations may be a positive for wealth retention but they are not a positive for Federal Reserve policy makers who want to see inflation, and with it the implication of rising demand, move higher. One-year inflation expectations, despite high prices for gasoline, are down a very steep 4 tenths so far this month to 2.3 percent. Five-year expectations are down 1 tenth to 2.4 percent.

This report represents a puzzle for FOMC policy makers with sentiment confirming that the economy is at full employment but inflation expectations suggesting that consumers, as the report notes, are content with limited growth rates in personal income.

Consensus Outlook
The consumer sentiment index showed only modest impact from Hurricanes Harvey and Irma in September when the index fell 1.7 points to what is a still very strong 95.1. Expectations are calling for a resumption of gains, to a consensus 95.4 for the preliminary October index. However inflation expectations, which are watched closely by FOMC policy makers, have been a key negative, unchanged at 2.7 percent in September despite gains in wages and hurricane pressures in gasoline prices.

Definition
The University of Michigan's Consumer Survey Center questions 600 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending. Consumer confidence and consumer sentiment are two ways of talking about consumer attitudes. Among economic reports, consumer sentiment refers to the Michigan survey while consumer confidence refers to The Conference Board's survey. Preliminary estimates for a month are released at mid-month. Final estimates for a month are released near the end of the month.
Why Investors Care

Consumer sentiment is mainly affected by inflation and employment conditions. However, consumers are also impacted by current events such as bear & bull markets, geopolitical events such as war and terrorist attacks. Investors monitor consumer sentiment because it tends to have an impact on consumer spending over the long run [although not necessarily on a monthly basis.]